WASHINGTON, March 27 A top U.S. regulator gave a
spirited defense on Thursday of new rules forcing foreign banks
to hold more capital in their U.S. units, after overseas firms
and regulators criticized the requirements.
Federal Reserve Governor Daniel Tarullo said the rules are
necessary to protect the U.S. financial system from another
meltdown like the 2007-2009 crisis.
"Of course, a few foreign banks would prefer the old system
under which they held relatively little capital in their very
extensive U.S. operations," Tarullo said in a speech at a
Harvard Law School event in Armonk, New York.
"But that was neither safe for the financial system nor
particularly fair to their competitors - U.S. and foreign - that
hold significant amounts of capital here."
Tarullo said foreign regulators also have applied capital
and liquidity requirements to subsidiaries of U.S. banks in
their countries that differed from rules enforced by U.S.
Before the financial crisis, U.S. regulators traditionally
counted on foreign supervisors to watch overseas banks operating
here. But after hundreds of foreign banks needed emergency loans
from the Fed during the meltdown, regulators changed tactics.
The Fed's new rules require foreign banks with sizeable U.S.
operations, such as Deutsche Bank and Barclays
, to group their U.S. units under a single entity and
meet tougher requirements on their debt loads and the amount of
easy-to-sell assets they need in case of a credit crunch.
Regulators have estimated that 17 foreign banks would have
to comply with the new requirements, which were finalized in
Foreign banks argued that the rules would deviate from
globally harmonized regulatory regimes and make the financial
system less stable. Some critics warned of a "Balkanization" of
Tarullo said the Fed's decision allows the same rules to
apply to domestic and foreign banks operating here. He said U.S.
units of foreign banks needed tougher scrutiny because they
relied on risky, short-term funding before the crisis.
"The most important contribution the United States can make
to global financial stability is to ensure the stability of our
own financial system," he said.
(Reporting by Emily Stephenson; Editing by Lisa Shumaker)